DOC CLEAN ENERGY ROUNDTABLE SEEKS RENEWABLE ENERGY OPPORTUNITIES, HIGHLIGHTS OBSTACLES

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SUBJ: DOC CLEAN ENERGY ROUNDTABLE SEEKS RENEWABLE ENERGY

OPPORTUNITIES, HIGHLIGHTS OBSTACLES



JAKARTA 00001348 001.2 OF 002





1. (SBU) Summary. Stephen Jacobs, Acting Assistant Secretary for

Market Access and Compliance, led an interagency and private sector

delegation to Jakarta for a Clean Energy Policy Roundtable and

government meetings July 27-29. Government meetings focused on

policy obstacles to developing renewable energy. Indonesia may lift

the investment restriction on power generation under 10 MW. Power

sector tendering and pricing issues remain problems to investors.

Bilateral financing facilities would help companies enter the

market. End Summary.



2. (U) More than 100 participants attended the Department of

Commerce's Clean Energy Policy Roundtable, held on July 28. Three

panels, composed of U.S. and Indonesian officials and private sector

representatives, discussed Indonesia's policy goals, technical

capabilities, and the state of the industry. The panels focused on

geothermal energy, other renewable energy, and financing renewable

energy projects.



3. (U) In subsequent government-to-government meetings, AA/S Jacobs

met with Minister of Energy and Mineral Resources Purnomo

Yusgiantoro; Ministry of Energy staff; Rudiantara and Yogo Pratomo

of Indonesia Electricity Corporation (PLN); and Bacelius Ruru,

Executive Secretary of the National Team for the Advancement for

Export and Investment (PEPI). AA/S Jacobs' meetings focused on the

primary obstacles to developing renewable energy, including

Indonesia's investment restriction on power generation under 10 MW,

problems with the public tendering process, and difficulties

negotiating power purchase agreements (PPA) for independent power

producers (IPP). Indonesian officials also welcomed the inclusion

of renewable energy under the bilateral Energy Policy Dialogue, and

were receptive to cooperation such as Methane to Markets and the

International Partnership for Geothermal Technology.



10 MW Investment Restriction May Be Lifted

--------------



4. (SBU) Bacelius Ruru stated that PEPI had already formally

recommended that the President remove the investment restriction on

power generation under 10 MW. Ruru acknowledged that the intended

aim of the investment restriction - to stimulate small and medium

sized enterprise investment in the power sector - had not happened.

The Ministry of Energy and Mineral Resources recognized that foreign

investors were necessary to develop renewable energy and had

proposed the regulatory change.



5. (SBU) Ruru cautioned that problems remain, because the newly

proposed regulatory language only refers to a "partnership" between

a large investor and an Indonesian small or medium-sized company.

It does not contain a clear definition of a joint venture or equity

levels so the new rule may not provide sufficient clarity. AA/S

Jacobs stressed that a rule without clarity does not provide a

better investment climate.



Tendering Process Remains a Concern

--------------



6. (U) The tendering process remains a particular concern to foreign

companies operating in Indonesia. Under Indonesian law, local

governments must tender identified renewable energy resources.

However, local governments rarely have the capacity to manage the

process or evaluate credible bids, so these tenders often pick

winners who are not able to go forward with a project. PLN, as the

monopoly purchaser of electricity, is under no obligation to accept

the electricity price from the tendering company's winning bid. In

many cases, winning companies must negotiate for business licenses

or PPAs for years after winning a renewable energy project bid.



7. (U) Geothermal Director Sugiharto stressed that the primary goal

of the tendering law was transparency, which he believed the current

process achieves. However, PLN Vice President Rudiantara agreed

that capacity building programs that help facilitate local

government tenders would be helpful. They also mentioned that a

commercial law development program might also help build capacity to

run tenders, and AA/S Jacobs agreed to look into Commerce Department

programs.



Electricity Pricing Also an Obstacle

--------------



JAKARTA 00001348 002.2 OF 002







8. (U) The Indonesian subsidized electricity market limits the

viability of renewable energy projects by constraining the prices

that PLN can pay for electricity. PLN operates at a deficit, which

the Indonesian government must then reimburse as a subsidy,

amounting to $8 billion in 2008. Each PPA must be approved by PLN,

the Ministry of Energy, and the Ministry of Finance, and the

overlapping authorities delay PPA approval even when prices are

reasonable for the Indonesian market.



9. (SBU) Renewable energy IPPs often require prices of $0.07 per

kilowatt hour or more. Coal IPPs typically sign contracts for

around $.045 per kilowatt hour (kWh). The price differential makes

it difficult to justify to the Ministry of Finance. Rudiantara

cited one renewable energy tender in which the winning bid required

$0.17 per kWh. Despite being below PLN's operating cost for the

region, PLN could not conclude a PPA at that price, because it was

so far above the rates that it usually pays to IPPs. PLN would like

to publicize ceiling prices for renewable energy, but Rudiantara

acknowledged that even this step would not make it easier to approve

projects whose price tags came in under the ceiling but above

competing energies.



Financing Facility Would Help

--------------



10. (SBU) PLN officials stated that financing facilities, such as

through ExIm or OPIC, could help address some of the pricing and

risk obstacles between PLN and potential IPPs. They cited an

Indonesian-Japanese Umbrella Note of Mutual Understanding that

provides letters of comfort to Japanese IPPs to reduce the risk

premium on financing. Rudiantara indicated that Indonesia is

negotiating a similar agreement with China. Indonesia will not

offer sovereign guarantees to IPPs, he said.



Energy Efficiency Is an Opportunity

--------------



11. (U) Energy efficiency offers potential benefits, according to

Minister Purnomo. He noted that Indonesian policy historically

emphasized maximizing supply of all energy and minimizing the cost

to the consumer. Indonesian officials have only begun to consider

demand-side management. There are currently no incentives for

efficiency, but Purnomo welcomed companies to develop the sector.

Subsidized fuel and electricity limits efficiency's appeal to the

private sector, but the government would welcome innovations that

would reduce its costs.



12. (U) This cable has been cleared by the Office of the Pacific

Basin at the International Trade Administration.



HUME